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State Warns Indians on Cigarette Tax

JAKE J. of Center Moriches bought two cartons of Marlboros for $32 at the Poospatuck Smoke Shop and Trading Company on an Indian reservation near Mastic and walked out with a smile.

"It would have cost me $50 elsewhere, and I couldn't afford that," he said.

That may change under a state plan that would impose the state excise tax on the sale of all cigarettes to non-Indians from stores on Indian reservations.

"What we're trying to do is level the playing field for retailers who have obviously lost a lot of business to stores on the reservations that can offer reduced prices," said State Senator Kenneth P. LaValle, Democrat of Selden.

Mr. LaValle said that many people traveled to reservations just to buy cigarettes. "I think that people are always looking for a deal, but it is unfair."

The United States Supreme Court ruled in 1994 that states could impose limits on tax-free cigarettes and gasoline sold by wholesalers to Indian reservations.

There are eight Indian nations in the state, two of them on Long Island. In addition to the Poospatuck, Long Island is home to the Shinnecock in Southampton. Neither the Shinnecock nor the Poospatuck sell gasoline, but they each have three stores that sell tobacco.

Mr. McKeon said the Indian nations had 120 days to negotiate how to pay the tax and if there were no agreements the state would impose the tax at the wholesale level.

State officials said they believed the state was losing $100 million to $200 million a year in cigarette and gasoline excise taxes because the Indians do not collect the levy.

The cigarette tax is 70 cents a pack and the gasoline tax is 31 cents a gallon.

A spokesman for for the Taxation and Finance Department, Marvin Nailor, said the department was not counting on that money anytime soon. "As soon as we put the regulations into effect," Mr. Nailor said, "we know we're going to be brought to court on the matter. So we're considering it an uncollectable, and it will not be included in the budget anytime in the near future." Because the Supreme Court exempted Indians from paying the tax, Mr. McKeon said, the state would draw up a formula to determine the extent of cigarette sales to non-Indians.

"It would be designed to reflect the number of Indians on the reservation," he said. "We would do the best we could to accurately reflect non-Indian sales. It's a significant amount of money. If we were able to reach an agreement maybe they would pay us directly based upon their sales."

The chief of the 55-acre Poospatuck Reservation, Harry B. Wallace, said that the Indians planned to oppose the state and that representatives of the nations had been meeting for a month and had "agreed that we can't negotiate with a gun to our heads."

"The Governor said he did not intend this to be an ultimatum, but that is what it is," Mr. Wallace said.

A counsel to the Governor, Judith A. Hard, said she met two weeks ago in Syracuse with representatives of three upstate Indian nations to discuss the tax plans. "We hope to meet with the other ones, too," she said. "The Governor said there is not an ultimatum, that the deadline would be extended if there is substantial progress toward a deal."

Mr. Wallace said the state plan went "beyond imposing an excise tax at the wholesale level."

"They intend to seize any items they perceive were sold in violation of the regulations," he added. "We say this based upon what they have done in the past."

In 1988 the state set limits on the quantities of untaxed cigarettes that wholesalers could sell to stores on Indian reservations. The wholesalers contested that in court.

After the Appellate Division of State Supreme Court ruled in 1992 that "Indian traders are not wholly immune from state regulation" to collect taxes, Senecas on the Cattaraugus Reservation between Buffalo and Dunkirk clashed with the state police. Protesters threw burning debris on the Gov. Thomas E. Dewey Thruway, and the state closed 30 miles of the superhighway before troopers arrested 13 protesters. Mr. McKeon said the tax would be collected at the wholesale level to avoid another confrontation.

Mr. Wallace said he had evidence that the state was preparing to mount an assault. He cited a memo dated from July that the state police might "require military forces to move against" armed Indians who were prepared to resist the tax collection.

The memo said the state expected "resistance from the pro-gambling warrior society dissidents who have demonstrated violent/militant resistance to occupation or intervention by DSP in the past."

Mr. McKeon said the memo during the Cuomo administration. "Somebody took it out of a drawer" in July, he said, adding, "The Governor made it extremely clear in public meetings and in private statements that he has the utmost respect for the sovereignty of the nations and that all collections will be done off reservation if there is no agreement."

Mr. Wallace said Mr. Pataki never totally disavowed the plan, saying just that he had no intention of putting it into effect now. "As far as we're concerned," he said, "this is the approach he is taking. It is an ultimatum."

Mr. Wallace said he used profits from the sales to help build two houses and his store, which he started in a trailer. He said the business had done so well that it had six employees and that two other cigarette stores had opened on the reservation.

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He termed the state request that the Indians collect the tax anathema to everything that the Indians believe in. "What they want us to do is to determine who is Indian and who is not," Mr. Wallace said. "They want us to discriminate on the basis of race and to deny a tax break to those consumers who are not Indian. We've never done that. Our reservations have a long history of providing sanctuary for displaced persons, going back to the Revolutionary War. And slaves were given sanctuary here. We're not now going to make distinctions."

If the state persuaded the Indians to collect the tax, Mr. Wallace said, he feared that the state would then move to tax Indian land.

Assemblyman Fred W. Thiele Jr., Republican of Bridgehampton, said: "I think that's a quantum leap. This issue has been all the way up to the Supreme Court, and it clearly said that sales to members of a tribe are not taxable, but that they are to nonmembers of the tribe. The decision was fairly narrow in scope."

Mr. Thiele said people who sold cigarettes in the Mastic area had told him that they were at a disadvantage after Mr. Wallace began selling cigarettes in October 1992. "One businessman said he had been hurt so badly that he was on the verge of closing," Mr. Thiele said.

The former owner of the General Store in Mastic, Richard R. Tufariello, said he had sold the store, which is less than two miles from the reservation, in September because of the competition.

"I was in business 23 years, selling tobacco products and baseball cards and other items," Mr. Tufariello said. "After Harry Wallace opened his store we got killed, scout's honor, killed. Within the first two weeks we saw a 20 percent decline in customers. And then there was a steady erosion until we lost over 95 percent of our tobacco-based customers."

Mr. Tufariello said he used to sell cigarettes at cost, as a loss leader, to attract people to buy other items. But he said there was no way to compete with Mr. Wallace's merchandise, which has no state excise tax or state and local sales taxes.

If he had not lost so many customers, Mr. Tufariello said, his business would have been worth $100,000. He said he sold it for $25,000.

The owner of Mike's One Stop on Mastic Road in Mastic Beach, Michael Cuomo, said: "I'm primarily a discount cigarette store and secondarily a convenience store. Cigarettes are the bulk of my business, but an ever decreasing bulk. Within the first year I probably had a 50 percent decrease in sales."

Mr. Cuomo said he took out a $25,000 bank loan and moved to a larger building across the street. In addition to cigarettes, he now sells groceries.

Mr. Cuomo, no relation to the former governor, said there were state regulations on cigarette prices. The most popular -- Marlboro, Newport and Winston -- cannot be sold for less than $20.49 a carton. Discounted brands like Basics, Doral and Montclair cannot be sold for less than $17.50 a carton.

The least expensive cigarettes like Private Stock and Pace cannot be sold for less than $13.50. He said he sold many low-priced cigarettes for as much as $2.50 above the minimum price.

At Mr. Wallace's store the other day, a carton of Marlboro was $16, Doral $11.50, Basics $12 and Private Stock, $9.75.

On a recent Sunday afternoon a steady stream of customers drove through a residential area and onto a dirt road to get to the store. No one stopped to look at the Indian jewelry and pottery for sale in an alcove. Nor did they stop for the "Indian" coffee that was heating up in a small dining area.

All made a beeline to the cigarette counter at the far end, and everyone knew the state plan and opposed it. Many refused to give their full names.

"I don't feel the Indians should have to answer to our government because they are a sovereign nation unto themselves," said Gail S. of Deer Park.

Lisa A. Goetze of Wantagh said she had been shopping at the Tanger Mall in Riverhead and decided to stop by the reservation for a carton of cigarettes. "I saved $6," she said. "It was worth it. People go out of state to buy furniture if they don't have to pay a big sales tax."

Her mother, Linda, said that if the state carried out tax plan, "a place like this would be put out of business."

David P. Morton of Lake Grove called the plan criminal. "This is the only thing the reservations have going for them," Mr. Morton said, "and now the state wants to take it away. I come here for two reasons, because it's cheaper and because I want to see these guys do well."

"We raped them," Jake J. said of the Indians. "They should reap the benefit of tobacco, because they originated it. Sir Walter Raleigh brought it to England. With all we took from them, this is the least we can give them back."